COMPANY NEWS

COMPANY NEWS; Time Warner Seeking Deal On Gear for Interactive TV

By JOHN MARKOFF,

Published: April 13, 1993

SAN FRANCISCO, April 12—
Time Warner, a leader in cable television, is in discussions with the computer work station maker Silicon Graphics Inc. to develop computer gear for the interactive television networks that are expected to revolutionize home entertainment before the end of the decade.

Silicon Graphics' work stations are widely used by movie producers for special effects like the apparent transformation of Arnold Schwarzenegger's nemesis into mercury in "Terminator 2: Judgment Day." An inexpensive television set-top computer based on the same technology for home use could bring such special effects within the reach of even the ordinary couch potato.

The discussions expand the range of possible alliances now in the works between the cable, telephone and computer industries as companies try to identify and stake out the high ground in an emerging new digital industry.

Computer makers in particular see such technology as the most promising new growth area during the 1990's. Already, the Microsoft Corporation, the Intel Corporation and the General Instrument Corporation are reported to be near an agreement to build a similar set-top system based upon Intel's 386 microprocessor chip and Microsoft's popular Windows software.

The talks between Silicon Graphics and Time Warner have involved both the set-top converter and the development of ultra-high performance "video servers" designed to store and dispense thousands of digital movies simultaneously, say several executives familiar with the deliberations.

The discussions are said to have included at various points other cable, communications and computer companies, including cable industry giant Tele-Communications Inc., as part of an effort to create a new digital television standard that would have the same influence the I.B.M. standard had in personal computing in the early 1980's.

James Clark, the chairman of Silicon Graphics, said he could not comment on the reports of the Time Warner discussions. A spokesman for Time Warner's cable division, Michael Luftman, said the company would not comment on any talks it was having with potential partners.

An alliance with Time Warner would further raise the profile of Silicon Graphics, which received immeasurable publicity in February when President Clinton visited the company's Mountain View, Calif., headquarters.

Computer industry executives said it was not clear how far the discussions had proceeded, although one said that proposed agreements had been exchanged between the two companies' lawyers and that Time Warner may have put things on hold while it assessed the situation.

Intel and Microsoft have been widely perceived as holding the inside track in the race to merge personal computing with television. But the Silicon Graphics-Time Warner talks, if they lead to a partnership, could change the handicapping.

"Everyone knows about Microsoft, but this one is really out of left field," said Mark Stahlman, a computer industry analyst. "The winners in new media are going to come out of left field."

Cable television companies are leery of making what many consider the mistake that I.B.M. made when it developed its first personal computer but ceded control of the software operating system to another company, Microsoft. That decision came back to haunt the world's largest computer maker several years later when it found that an effective software monopoly had turned Microsoft into a powerful competitor.

At a multimedia industry panel in San Jose, Calif., last month, John Malone, the chairman of Tele-Communications, publicly told William Gates, the chairman of Microsoft, that the cable industry would not make the same mistake. Mr. Malone said he would not be put in the position of being dependent on Microsoft for software.

Another factor that might work against a Microsoft-Intel alliance is that many computer designers believe that a cable set box powered by an Intel 386 chip would be badly underpowered for future video applications and would be useful for only the most rudimentary user-control applications, like sorting through 500 channels of programming to find something to watch.

Thus many designers are pinning their hopes on advanced reduced instruction set computing, or RISC, processors like the MIPS R4000 design sold by Silicon Graphics.

"If I had a choice between Microsoft's TV guide and the ability to have Silicon Graphics computer graphics quality in my television, I know which one I'd choose," said Denise Caruso, the editor of Digital Media, an industry newsletter based in San Francisco. "I don't think there is any comparison."

For more than a year, Silicon Graphics executives have been publicly describing their vision of a powerful low-cost set-top computer that would blend computing and television by letting users go beyond program selection to such tricks as playing three-dimensional video games with other viewers of the cable system. Many executives in the industry believe that such a computer must be able to be manufactured for as little as $300 to be priced for the home market.

While unwilling to comment on any partnership talks, Mr. Luftman of Time Warner said the company was close to making announcements about equipment providers for its new digital cable network in Orlando, Fla. That system will employ a fiber-optic cable network and include a set-top computer to offer Orlando viewers digitally stored movies on demand and provide other information services.

Time Warner has also invested in 3DO, a Silicon Valley start-up company that has developed a set-top compact disk player with special graphics features. Although the company will not ship its first product until later this year, 3DO's founder, Trip Hawkins, has said that he intends to make a product that will serve as a link between the cable system and the television.

Mr. Hawkins and Silicon Graphics' chairman, Mr. Clark, are outspoken rivals who have both indicated that they each want to play a role in shaping the interactive computer market.